Irrelevant of term, a regulated mortgage contract is defined as a loan to an individual or trustee where the obligation of the borrower to repay is secured by a first legal charge on land in the UK, at least 40 per cent of which is used, or intended to be used, in connection with a dwelling for the borrower or by a related person.
In order to advise and make recommendations regarding RMCs, an individual must have gained a suitable qualification – the Certificate of Mortgage Advice and Practice, or CeMAP, being the most common, with over 80 per cent of mortgage advisers holding this post-nominal.
I took CeMAP in 2007 and passed the three modules required in about six months. I recall the multiple-choice examinations as challenging and the course content as broad and comprehensive.
Modules two and three form the basis for a further qualification permitting the holder to provide advice on retail investment products. You can understand how some information in these modules can, therefore, be overly complex. Those wishing to become a mortgage broker only and with no ambition to become a financial adviser may have found certain areas interesting but largely irrelevant once they began practice. I am yet to understand the relevance of Reits and Oeics to a mortgage broker.
The section on bridging within CeMAP is one page of one module. It covers the very basics only: definitions, typical uses and risks. Conceptually, bridging is not complicated but there are a number of areas clearly being ignored under the current syllabus that must be included to ensure better customer outcomes. This is especially important due to the nature of bridging – generally higher interest charges and an exclusive reliance on security.
I believe the areas listed below should be included. This is a view supported by the Association of Bridging Professionals, which has recently submitted a consultation paper to the FCA on the subject.
1. Understanding different charging methods: Not all lenders calculate interest in the same way, so two lenders offering the same monthly interest rate may not represent an equal overall cost for comparison. A lender that calculates interest using a fully retained method would be more expensive than one using a monthly compounding model, sometimes known as roll-up
2. Understanding when a loan is regulated by the FCA or by the Consumer Credit Act
3. Understanding the implications of credit repair bridging
4. Calculating overall cost for comparison with differing term lengths
5. Defining different types of interest payment: Retained, rolled-up, blended.
A specialist qualification exists for equity release, presumably because advice affects a group considered potentially more vulnerable and methods of interest payment are unique compared with monthly servicing. Advisers should be specially educated to advise on these complexities.
I would argue a bridging finance qualification is needed for the same reasons, but the need is greater with bridging because of higher interest rates involved and the relatively high risk of repossession due to the short term.
Two options exist in terms of implementation. The first and easiest is to heavily bolster existing course content within CeMAP. This would be relatively straightforward to introduce and would ensure a default understanding level for all future advisers.
The second involves introducing a new specialist qualification similar to that which exists for equity release advisers. Those already involved or wishing to be involved in this sector would be required to hold this qualification in order to advise on short-term (less than 12 months) regulated mortgage contracts.
I would favour this approach and would be happy to sit the exam and ensure my sales team did the same. I would be proud to display this qualification to brokers and customers alike as a symbol and guarantee of excellence. Qualifications of this nature improve customer confidence and quality of advice.
I appreciate a number of readers will disagree. Some will argue that professional experience is more important than qualifications. They may believe that learning is best achieved in a practical environment rather than being theoretical. I agree. I learned bridging through advising on bridging products every day – but that does not necessarily mean I know my stuff. Test me and I will prove it.
“For the things we have to learn before we can do them, we learn by doing them” – Aristotle.